New EU Tax Regulations: What OSS and IOSS means for your store IOSS and OSS Means for Your Store
The 1st of July, 2021 New EU tax rules will come into effect in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce program takes effective. The changes are a major change to the tax system that are designed to streamline the processes for retailers and their administration. They affect almost all business-to-consumer (B2C) firm that conducts cross-border eCommerce (often referred to as "distance sellers") with the EU.
EU retailers who cross the new threshold for the EU that is EUR10,000.00 will need to register for registration in all EU nations where they perform taxable business-to-consumer sales. But, they can choose to do so via the recently-created One Stop Shop (OSS) program in their home country. This allows eCommerce merchants to make an identical VAT return for the whole of the EU and to make a single tax payment distributed across countries where they make sales.
Here are a few key changes below. We always recommend consulting with a tax professional in order to ensure that your business adheres to the latest regulations and best practices.
Who will be impacted?
The EU VAT eCommerce program affects EU retailers that exceed an European-wide limit of EUR10,000.00, and non-EU merchants exporting goods to the EU.
Merchants have the option to use to use the One Stop Shop (OSS) processing system, which allows them to file one VAT return to all of the EU as well as separately submit an individual VAT return for each EU country that they ship to.
The rate of VAT varies across countries with rates ranging from 17% in Luxembourg up to 27% in Hungary ( see the complete listing of rates) So, retailers will want to charge the VAT rate applicable to the shipping country used by the customer for orders within the EU. These include orders that are shipped from a fulfillment center in the EU to an address within the EU.
What's changing?
The way it works:
The current distance selling scheme permits businesses to not register to register for VAT in a country where they sell B2C supplies that are tax deductible, so long as the total amount of these supplies does not surpass the threshold of distance selling in a given year. Businesses can apply their tax rates local to the sales like if products sold never left the country in which they were sold. When the threshold has been crossed in the country of origin the business must register and file VAT returns and then impose the local tax rate of the jurisdiction of registration B2C sales.
Consider the case of a German business that is selling physical items to consumers in Romania. As long as the German company reaches the annual threshold of Romanian revenues of EUR25,305.00, their sales are tax-deductible to Germany and are subject to the standard German VAT rate of 19 percent.
When the threshold has been crossed at EUR25,306.00 Once the threshold is crossed, Romanian sales become tax-deductible in Romania and must register there and charge the Romanian standard VAT rate of 19 1 %.
How it will work when the changes are in effect:
The 1st of July marks the day that the thresholds for distance selling in certain countries will disappear in the EU, and a new threshold of EUR10,000.00 is set to be established. Once it's crossed businesses will be required to sign up in the states where they are able to make tax-deductible B2C products, however they may choose to do so via the recently-launched One Stop Shop system in the country they are in.
It will permit eCommerce merchants to file a single VAT return for the entire EU and make a single tax payment distributed amongst countries where they make supplies. This scheme will function as an extension of the current mini one Stop Shop (MOSS) scheme that is available to digital service companies.
So the German physical goods dealer who makes B2C taxable supplies for Romanian, Czech, and Polish private consumers, would be able to do so without registration in these three countries. Once they cross the EU-wide threshold and are registered for OSS in Germany and file a single tax return and then make one tax payment (instead of three). However, their domestic German B2C sales will still need to be reported on their tax return for the local area, and local VAT is required to be paid.
What about sellers outside from EU? EU?
The VAT exemption applicable to the importation and use of goods with a value not exceeding EUR22.00 will be removed. This means that all goods imported to the EU are affected by VAT. The non-EU seller has a nonexistent registration requirement, which means that they have to sign up with their first B2C sale.
To make VAT compliance easier for merchants outside of the EU, the Import One Stop Shop (IOSS)will be established. IOSS allows single submission of returns to merchants that decide to charge VAT at the point of sale for consignments less than EUR150.00. If a business chooses not to sign up for IOSS VAT, it will be paid by the customer upon importing products from the EU. Goods valued in excess of EUR150.00 are subject to VAT on arrival.
IOSS can also affect customs clearance and has potential for processing imported goods more quickly. For some shipping companies when VAT is assessed at the point of sale, sellers can provide the IOSS number in the Commercial Invoice data to the shipping provider to declare customs.
Information for merchants that is useful
To learn more about updating your tax settings go to our tax documentation.
When making changes to your tax settings we strongly recommend contacting the tax expert to verify that all regulations are being met.